156 VALUATION, DEPRECIATION AND THE RATE-BASE
may be determined from cost records while in other cases it
may have to be estimated from less dependable data and as-
sumptions.
The rate-base should be made the basis of the calculation.
The earnings present and prospective should be adequate to
yield a proper return on the rate-base and they should more-
over also be adequate to create some value in addition thereto
which will be compensation to the owner for having established
and for managing the utility and may be in lieu of appreciation
which under this method of procedure would not always appear
in the rate-base.
The Effect of a Bonus upon the Rate-base. — Attention has
already been called to the fact that when the owner has received
a bonus, in order to encourage construction, the original cost
to him is reduced by the amount of the bonus. This circum-
stance should not be overlooked in determining the rate-base.
How the bonus paid to the owner may affect the rate-base
can be made clear by an illustration. The case can readily be
conceived of an irrigation system constructed at an average
cost of $30 per acre. The right to take water from this canal
system is made the matter of contract, each land owner who
takes water for a given tract paying to the canal owner a bonus
of $20 per acre. When all the land within the area to be
served by the canal has acquired the right to take water from
the canal, the owner will be out of pocket only $10 per acre and
not $30. Full justice will be done to both the owner and to
the irrigator if the rate-base in this case be estimated at $10
and not at $30 per acre, due consideration being given to all
other elements that should be included in the rate-base.
Two Procedures may be Followed in Determining a Rate-
base. — There arc two standpoints from which the matter of
determining the rate-base may be approached and the proce-
dure in the matter of making an appraisal which is to serve as a
basis for fixing rates will vary according to the standpoint taken.
In the one case, the investment is regarded as unimpaired,
and no deduction is made for amortization or depreciation, and
